NEW DELHI, Feb 14 (Reuters) - India's finance minister willbe walking a tightrope when he presents an interim budget forthe coming fiscal year on Monday, doling out more funds to woovoters and tax cuts to support industry while projecting a lowerfiscal deficit before elections.

Asia's third-largest economy is facing its worst economicslowdown in nearly a decade, with shrinking manufacturing,slower jobs growth and high inflation limiting the government'sability to offer sops to voters or companies to boost growth.

Opinion polls predict defeat for the Congress-led rulingalliance in elections due by May amid widespread discontent withits mismanagement of the economy, high inflation and corruptionscandals.

Officials say Finance Minister P. Chidambaram is likely tomake a last-ditch attempt to win back voters by announcing morefunds for health, rural jobs, roads and food subsidies, and tospeak about the government's achievements in the last 10 years.

Chidambaram will have slightly more manoeuvring room afteran auction of telecommunications spectrum which ended onThursday brought in a much higher-than-expected $9.85 billion inbids. The government will get at least $3 billion of thatupfront in the current fiscal year, with the rest spread outuntil 2026.

In an election year, India presents an interim budget to parliament for approval for planned expenditure for three tofour months, but leaves the next government to take major policysteps in the full-year budget after the polls.

Chidambaram is expected to cut factory-gate duties onproducts like autos to support the manufacturing sector, extendan interest subsidy on bank loans to exporters, farmers, andoffer tax concessions for poorer regions.

Since taking charge last August, Chidambaram has taken manysteps such as reducing spending and gold imports to rein in thefiscal and current account deficit that helped stave off thethreat of credit rating downgrades last year.

But he has made limited headway in taming persistently highinflation and shoring up economic growth.

The economy is projected to grow by 4.9 percent for thecurrent fiscal year ending in March, much lower than the morethan 9 percent growth seen before the 2008 global financialcrisis. Annual retail inflation remains uncomfortably near 9percent.

He is expected to report a fiscal deficit of nearly 4.8percent of GDP for the current fiscal year, helped by sharpspending cuts, higher receipts from the sale of telecomsspectrum and dividends from state firms.

"We will surprise everyone on the fiscal deficit numbers," a senior finance ministry official told Reuters.

"The government is expected to cut budgeted expenditure by550-650 billion rupees in sectors like roads, metro rail,defence and power sectors to meet the deficit target," saidanother government source.

It also may defer oil, fertiliser and other subsidies worthnearly 1 trillion rupees ($16.10 billion) to the next fiscalyear, he said, adding the final figures could be higher, andwould be known only at the end of fiscal year on March 31.

Both sources declined to be identified because they were notauthorised to speak about budget numbers.

However, the oil, fertiliser and food subsidies are likelyto be budgeted at about 2 percent of GDP for next fiscal year,compared with 2.21 trillion rupees ($35.59 billion) budgetedsubsidies for this fiscal, the second source said.

The next government may revise these numbers when itpresents the full-year budget in June or July.

Officials say the finance ministry has rejected the powerministry's proposal to grant an annual 250 billion subsidy for gas-based power plants to cushion customers as natural gasprices are set to almost double from April 1.

However, the railways, defence, health and other ministrieshave been assured of more funds in the budget.

DEFERRING BURDEN

Analysts and the central bank are worried that by deferringa large amount of subsidies to the next fiscal year, Chidambarammay harm growth prospects.

"The government should avoid deferring release of funds forexpenses that have already been incurred, to prevent tighteningof systemic liquidity and further harm to sluggish growth," saidAditi Nayar, an economist at ICRA, the Indian arm of creditrating agency Moody's.

The central bank has asked the government to target food andfuel subsidies for fiscal consolidation, and take steps to dealwith food inflation.